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Aurobindo Pharma: Strong finish to the year
Jun 11, 2013

Aurobindo Pharma has announced fourth quarter results of financial year 2011-2012 (4QFY13). The company has reported a 32% YoY growth in sales and a flat growth in net profits. Here is our analysis of the results.

Performance summary
  • Revenues grow by a healthy 26.5% YoY in FY13 largely on the back of healthy growth in both the formulations as well as the API businesses.
  • EBDITA margins improve by 2% to 15.2% during the year due to lower raw material costs (as percentage of sales).
  • Strong performance at both the topline and EBDITA level results in a 62% YoY rise in profit before tax (PBT) in FY13.

Consolidated snapshot
(Rs m) 4QFY12 4QFY13 Change FY12 FY13 Change
Net sales 11,907 15,704 31.9% 46,274 58,553 26.5%
Expenditure 10,503 13,303 26.7% 40,173 49,662 23.6%
Operating profit (EBDITA) 1,404 2,401 71.0% 6,101 8,891 45.7%
EBDITA margin (%) 11.8% 15.3%   13.2% 15.2%  
Other income 59 141 138.0% 247 285 15.5%
Interest (net) 352 316 -10.3% 1,028 1,313 27.8%
Depreciation 539 693 28.5% 2,005 2,487 24.0%
Profit before tax 572 1,533 168.1% 3,315 5,375 62.1%
Exceptional items (13) 0   (3,212) -  
Forex loss/(gain) (1,035) 13   2,233 1,634 -26.8%
Tax 519 445 -14.2% (888) 827  
Profit after tax/(loss) 1,074 1,075 0.1% (1,241) 2,914  
Net profit margin (%) 9.0% 6.8%   -2.7% 5.0%  
No. of shares (m)       291.1 291.1  
Diluted earnings per share (Rs)*         10.0  
P/E ratio (x)*         17.7  
* on trailing 12-months basis; excluding extraordinary items

What has driven performance in FY13?
  • Aurobindo's topline during the year grew by a healthy 26.5% YoY on account of good growth in both the formulations as well as the API businesses. The formulations business grew by a robust 30% YoY during the year. In this, revenues from the US witnessed growth of 48% YoY. This was led by new product launches and increasing market share of the existing basket of products. In terms of filings, Aurobindo made 269 ANDA filings as at the end of March 2013 with 181 ANDAs approved including tentative approvals for 26 ANDAs. As far as its facilities are concerned, Unit 4, which is a general liquid injectable facility, commenced commercial operations during the end of the fourth quarter. The company received the EIR (Establishment Instruction Report) for Unit 6 for manufacturing the 9 oral cephalosporin products approved from there and it has stated re-introducing the products in the market in a phased manner.

  • The API business also did well to grow by 23% YoY during the year. In this, the cephalosporins segment grew by a healthy 26% YoY during the year due to higher uptick and favorable demand scenario in the local market.

    Revenue breakup
    (Rs m) FY12 FY13 Change
    USA 11,836 17,526 48.1%
    Europe & ROW 6,325 8,843 39.8%
    ARV (anti-retroviral) 7,866 7,503 -4.6%
    Total formulations 26,027   33,872 30.1%
    SSPs 6,289 7,652 21.7%
    Cephalosporins 7,462 9,373 25.6%
    Non-Pen Non-Cephs 6,870 8,337 21.4%
    Total APIs 20,621   25,362 23.0%
    Dossier Income 599 760 26.9%
    Grand total sales 47,247 59,994 27.0%

  • Aurobindo's operating margins substantially increased by 2% to 15.2% during the year led by lower raw material costs (as percentage of sales). Raw material costs fell considerably from 54.5% of sales in FY12 to 51.1% in FY13 on account of a better product mix. While staff costs also reduced, other expenditure increased from 20.8% of sales in FY12 to 22.4% of sales in FY13. Overall, operating profits grew by an impressive 46% YoY during the year.

  • Strong performance at both the topline and EBDITA level resulted in a 62% YoY rise in profit before tax (PBT) in FY13. The company had incurred an extraordinary loss to the tune of Rs 3.2 bn in FY12. Excluding this, growth in net profits during the year stood at 48% YoY.

What we expect?
At the current price of Rs 172, the stock is trading at a multiple of 9.6 times our estimated FY15 earnings per share. Going forward, Aurobindo Pharma's business will be driven by the increasing scale of its formulations business, especially in the US as the pace of product launches picks up. The company received the EIR (Establishment Instruction Report) for Unit 6 for manufacturing the 9 oral cephalosporin products approved from there and it has stated re-introducing the products in the US market in a phased manner. This is a positive as a result of which sales from the US should receive an additional boost. Margins are also expected to improve with higher capacity utilization and the focus on niche products with limited competition. We, thus, advise investors to 'Hold' on to the stock.

We would like to remind our subscribers that for the purpose of risk minimisation, one should avoid having more than 5% exposure on any one stock from the overall equity portfolio. Please do visit our asset allocation section for further details.

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